A free-market energy blog
Random header image... Refresh for more!

Posts from — May 2009

Energy Reality Wins at Exxon Mobil Annual Meeting (Atlas is not shrugging at this substance-over-form company)

If only the United States economy were as strong as ExxonMobil. If only energy realism and free-market consumer service were guiding lights in Austin, Texas; Washington, D.C.; and other seats of political power.

The good news from Exxon Mobil’s annual stockholders meeting in Dallas earlier this week is that the company is focused on its core competencies amid the energy politicization around it. No Enron political machinations here!

In fact, Exxon Mobil is the anti-Enron of corporate America, a rebuff to Ken Lay, who once worked at Exxon, and Jeff Skilling, who declared in 2000: “You will see the collapse and demise of the integrated energy companies around the world. They are going to break up into thousands and thousands of pieces.” (1)

Key Messages

The key messages of Exxon Mobil CEO Rex Tillerson were: 

  1. Petroleum as a primary energy source is the future, not only the recent past. (Comment: renewable energies once had a 100% market share, corresponding to mankind’s energy poverty era.)
  2. Developing politically dependent renewable energies such as wind and solar are not the company’s forte. (Comment: Exxon Mobil is implicitly practicing Principled Entrepreneurship ™, a socially responsible business model.)
  3. If carbon dioxide is to be priced, a tax is preferable to cap-and-trade. (Comment: Tillerson has not come out in favor of pricing CO2 per se, to my knowledge, and most economists would pick the same of the two options.) 
  4. Win-win emission reduction technologies and strategies are better than politically correct/economically incorrect ones. (Comment: the jury is still out on this, of course, but it will be interesting to see how Exxon Mobil’s R&D bets turn out relative to those of the other energy majors.) [Read more →]

May 30, 2009   6 Comments

Smart Grid: Can 'Smart Metering' Overcome the Hassle Factor? (transaction costs matter too)

When asked for conjectures about the Smart Grid, economists’ imaginations become almost indecently fertile. Writing in her blog, market-friendly Lynne Kiesling sees astounding dividends from real-time pricing and smart grid technology, preferably with competitive retail service.

Say, for example, you are on the train to work, and you get a SMS [ text message] notification that due to unexpected weather, there will be a higher-than-normal electricity price in the 9:00-10:00 hour. You may have already programmed your devices to respond to price signals, but what if the price is high enough that you want to change your settings? You can log in to your HAN [Home Area Network] from your mobile device, or from your computer at work, and change the device settings in the home through the web portal. … [i]f the home has e.g. solar PV panels the customer can program the network to reduce electricity use once the home’s consumption reaches the generation capacity of the solar resource.

But what is wrong with this picture? [

May 29, 2009   4 Comments

The New MIT Climate Study: A Real World Inversion?

Considering that climate models are predicting global temperatures to be rising at a rate far greater than they actually are, you would think that the model developers would be taking a long, hard look at their models to try to figure out why they are on the verge of failing.

In fact, I would expect to soon start to see papers in the scientific literature from various modeling groups attempting to explain why their models have gone awry and to provide an accompanying downward revision of their projections of 21st century temperature change. After all, how long a period of no warming can be tolerated before the forecasts of the total warming by century’s end have to be lowered? We’re already into our ninth year of the 100 year forecast period and we have no global warming to speak of (Figure 1).

Figure 1. Observed monthly global temperature anomalies, January 2001 through April 2009 as compiled by the Climate Research Unit)

So imagine my surprise when a paper just appeared in the Journal of Climate by a group of researchers at M.I.T. that nearly doubled the existing expectations of the total warming by the year 2100!

This is quite a gutsy group, for not only are they saying that the prevailing model projections—which are already way too hot—are warming things up too slowly, but that when they re-examine the model inputs, they predict a best-guess warm-up that lies very near the current worse-case projections. [Read more →]

May 28, 2009   23 Comments

Houston Chronicle: Climate Alarmism and Policy Activism, but no Economic Analysis

“With overwhelming scientific evidence that the threat of global climate change is real and accelerating, it’s imperative that the United States, the second-biggest producer of carbon dioxide, take a leading role in crafting solutions. [Waxman-Markey] offers an opportunity to begin exercising that leadership.”

The Houston Chronicle editorial page is one of the most biased in the nation when it comes to climate alarmism and associated public-policy activism. And it maintained that unenviable reputation with last Sunday’s op-ed, Cap-and-Trade-Off.

The 559-word piece is disappointing both for what it did say and for what was left unsaid.

First, some facts in the piece were out of date. (Okay, someone clocked out early for the long weekend; me too.)  The bill was not under debate as stated in the first sentence; it was voted out of committee. The free allowances were not two-thirds of the total as stated but appreciably more. As (correctly) reported in the New York Times:

“In the end, 85 percent of all pollution allowances were given at no cost for various purposes, including compensating energy-intensive industries, state governments, oil refiners and low-income households, at least in the early years of the program. Mr. Obama’s position during the presidential campaign was that all of the permits should be auctioned, not given away, but the White House did not object to Mr. Waxman’s generous allocations.”

But what is far more important, the op-ed contained no discussion of the proposed legislation’s costs and benefits. Specifically, what is the gain for global climate from the bill, and what are the costs (including administrative) for all the regulation proposed in this “massive, 946-page bill”? [Read more →]

May 27, 2009   7 Comments

Unilateral or Worldwide, Waxman-Markey Fails Standard Cost/Benefit Tests (CO2 "leakage" makes bad even worse)

Jim Manzi has a very good post introducing the analysis of costs and benefits of Waxman-Markey. Here I want to follow up on Manzi’s great start, by showing that Chip Knappenberger’s estimate of the climate benefits of Waxman-Markey (W-M) actually erred on the side of optimism in its assumptions.

Specifically, Knappenberger very conservatively ignored the problem of “leakage”–he didn’t model the fact that unilateral U.S. carbon caps would actually increase the rate at which other countries’ own emissions grow. What’s worse, even if the entire world signed on to the aggressive emission schedule in W-M, the resulting environmental benefits would be achieved at a staggering cost in terms of lost economic output.

No matter how you slice it–whether the U.S. goes it alone, or the rest of the world signs on too–the environmental benefits of W-M are swamped by its economic costs. [Read more →]

May 26, 2009   13 Comments

Waxman-Markey Clothier for the Emperor: A Climate Parable (response to RealClimate)

[Editor Note: This is a response to the commons analogy of Gavin Schmidt at RealClimate to Mr. Knappenberger's temperature analysis of Waxman-Markey]

“Hear ye, hear ye, the Emperor is parading by with his new wardrobe of ideas to save the world from global warming—a wardrobe painstakingly crafted for him by the tailor shop of Waxman-Markey—and which all of you will soon have to adopt. All hail the Emperor!”

“But he has nothing on!” cried a small, but persistent voice. “His expensive ideas do nothing to change the climate!”

“Hush, little boy.” “Quiet!” “Shhhh.” “Shut up!” “That kid doesn’t see the whole picture!”

“The whole picture?” the little voice persisted. [

May 23, 2009   6 Comments

"Best Science" and the Problem of Land-based Thermometers (Anthony Watts's Surfacestations project)

Editor Note: Readings from land-based temperature records are in dispute, with most concern centering on how much of the recorded warming in recent decades is attributable to local versus global processes. Climatologist Patrick Michaels has recently brought attention to the problem, and the post below describes some preliminary findings of an on-going survey comparing real-world thermometer siting practices to recommended standards–and its potential impact on global warming in theory and practice.

President Obama and his administration take pains to stress that their climate and environmental policies will be informed by the best science available. And that is as it should be, but the entire task can be complicated by the fact that sometimes the best available science may not be good enough for the task at hand.

Anthony Watts’s report on the Surfacestations projectIs the U.S. Surface Temperature Record Reliable?—raises the distinct possibility that critical portions of policy-relevant climate science may be based on questionable, if not bad, data. And good science cannot be founded on bad data.

The Surfacestations project, initiated by Watts, is a survey of the 1,221 surface temperature stations that make up the U.S. Historical Climatology Network, a survey conducted by 650 volunteer citizens. This Network was established by NOAA to provide, among other things, accurate and unbiased long-term temperature trends for the United States.

Watts’s report is based on a survey of about 70 percent of the sites. It provides photographs and other documentary evidence that NOAA’s own siting standards have been not only compromised, but badly compromised. Many of these monitors are today located in airports and wastewater treatment plants, which are hardly representative of the earth’s surface. More importantly, over the years, towns and cities have grown around the monitoring sites, the immediate vicinity of the thermometers has been paved over with concrete or black asphalt, heating and air conditioning units have been introduced, and shade-providing trees have grown up or been chopped down. Most of these changes would tend to exaggerate the degree of warming that has occurred in the United States (and globally). [Read more →]

May 22, 2009   4 Comments

"The Unbearable Lightness of Wind" (EU update)

[Editor note: Ross McCracken is editor of Platts Energy Economist]

Where support mechanisms are sufficiently generous, wind power is racing ahead. In the European Union, where supported by feed-in tariffs in countries like Germany and Spain, wind power targets are very likely to be met, if not exceeded. Last year, more wind capacity was installed in the EU than any other energy source, for the first time outstripping even natural gas.

Wind has become the “market choice” because the technology is mature, bank lending is assured where prices are guaranteed, and the supply-side has been steadily ramping up production capacity. And wind is the only viable renewable that can deliver large amounts of installed capacity in the short term.

But just because you can doesn’t mean you should. As wind penetration increases, the pricing effects become more extreme, impacting the profitability of existing baseload and peaking power plant, albeit in different ways. Surges in wind power create ‘spill,’ unwanted power that sends spot market prices to zero, reducing revenues from existing plant and increasing the redundancy of more flexible plant. This might be good news for consumers but bad for investment in non-intermittent sources of power, presenting the risk of a decline in reserve capacity. [Read more →]

May 21, 2009   4 Comments

The President's New Cars (climate policy for motor vehicle transportation rears its ugly head)

My op-ed in today’s USA Today is about President Obama’s proposed new fuel economy standards.  Don’t like ‘em.  Unfortunately, an editing snafu over at the newspaper inadvertently left out the fact that there are four models at present that meet the proposed new standard – the 2010 Honda Insight (41 mpg) and 2010 Ford Fusion Hybrid (39 mpg) were left off the list.


Space prohibited me from making an additional point.  Even if there is no rebound effect, my colleague Pat Michaels finds that global temperatures will only be reduced by 0.005 degrees Celsius by 2050 and 0.0078 degrees Celsius  by 2100 once you plug those emissions reductions into the computer models used by the IPCC.  (These are thousandths of a degree, mind you.) Of course, proponents contend that U.S. action on fuel efficiency will lead to like action abroad.  Well, good luck with that.  But even if all of the signatories to the Kyoto Protocol adopted Obama’s proposed fuel economy standards, global temperatures would be reduced by only 0.038 degrees Celsius by 2050 and 0.071 degrees Celsius by 2100.  If you tried to monetarize those benefits, you would be hard pressed to come up with an defensible number of consequence.


So what should be done instead?  Nothing! [

May 20, 2009   6 Comments

Committee Dems Reject Job Loss Cap (and what does this say about the party in power?)

Yesterday, on a strict party-line vote (34 Nay, 21 Yea), Democrats on the House Energy and Commerce Committee defeated Rep. Fred Upton’s (R-MI) amendment to protect workers from potential job losses due to the Waxman-Markey legislation.

Upton’s amendment is short and to the point:

After section 2, insert the following section and make the necessary conforming changes in the table of contents:


The Administrator [of EPA], in consultation with the Secretary of Labor, shall annually prepare and certify a report to Congress on the average national employment rate for the prior year. If the Administrator determines, in consultation with the Department of Labor, that the unemployment rate for the prior year meets or exceeds 15%, as a result of the implementation of this Act, the provisions of the Act shall cease to be effective.

For perspective, the unemployment rate in April was 8.9%. So under Upton’s amendment, [Read more →]

May 20, 2009   4 Comments